Which statement is true concerning the establishment of transfer prices?
A)If the selling division is operating at capacity,it should transfer at market price.
B)If the selling division is operating below capacity,it should transfer at a discount.
C)if the selling division is operating below capacity,it should transfer at market price.
D)None of the answers is correct.

Question

Quizplus · Accepted Answer

If the selling division is operating at capacity, it cannot produce any more units to sell, so the transfer price should reflect the market price to ensure the company is receiving the maximum possible revenue. If the selling division is operating below capacity, it may have extra capacity that it can use to fulfill the internal transfer, and thus it should not require a discounted transfer price.

Which Statement Is True Concerning the Establishment of Transfer Prices